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Mortgage Income Multiples
Checking how many times your salary is available for a mortgage in 2018 will technically always result in an incorrect answer. Traditionally, lenders have calculated the maximum affordable mortgage using income multiples. For example a lender may have allowed you to borrow up to 5 times your sole income or 4.5 times a jointly combined income (for instance if you applied with a partner). So this would have allowed you borrow up to £100,000 on a income before tax of £20,000. However, after the most recent financial crisis, regulators phased out the use of mortgage income multiples in favour of more sophisticated affordability calculations. Income multiples are still used, however, and typically create hard caps on the size of mortgage available.
Lenders are now required to perform a more rigorous analysis when calculating how much you can borrow on a mortgage. This involves considering your income, your outgoings, whether you have children, the effects of rising interest rates on your ability to pay the mortgage each month and the type and length of mortgage you are applying for amongst other things. Each lender will have their own way of considering how much you can borrow but you can use our affordability calculator to get a rough idea of what is possible.
The more complex your personal finances are the less likely it is that an income multiple is going to give you an accurate reflection of how much you can borrow on a mortgage. For example if you are various credit commitments such as mortgages, personal loans, credit cards, car finance, school fees, child care or even pension contributions this will need to be taken into account. Also if your income is more complicated than a basic salary each month then care needs to be taken. Bonuses, commission, vesting shares and other allowances will all be accepted at different levels depending on both the lender and your compensation structure.
Interestingly, although there has been a shift towards affordability based models we frequently see that lenders calculators give a maximum mortgage figure very similar to if a simple mortgage income multiple was used instead. It is currently a fair assumption that you will not be able to borrow more than 5 times your basic income. Obtaining the maximum mortgage possible is sadly a common requirement but our advisers will be happy to help you find the right solution.